Supreme Court puts new rules on damage awards

WASHINGTON
— An Oregon jury violated constitutional principles of fairness when it levied a $79.5 million punitive-damages award against the Philip Morris tobacco company in a single smoker lawsuit.

In a 5-to-4 decision announced Tuesday, the US Supreme Court struck down the verdict because it said the jury violated due-process protections when it sought to punish the tobacco company for injuries suffered by nonparties to the litigation.

Writing for the majority, Justice Stephen Breyer said the jury could consider Philip Morris's alleged deceptive conduct toward all smokers in Oregon in determining the reprehensibility of its conduct. But he said the jury could not then punish Philip Morris for that same conduct without violating the tobacco company's constitutional rights.

In reaching its decision, the court avoided addressing the most closely watched issue in the case: whether a nearly $80 million punitive-damages award for the widow of a smoker is constitutionally excessive.

"The Constitution imposes certain limits in respect both to procedures for awarding punitive damages and to amounts forbidden as 'grossly excessive,' " Justice Breyer writes. But he said the court would address only the procedural issue and leave it to the Oregon courts to address the issue of excessive punitive damages during any retrial.

The decision is important because it represents a move by the high court to impose constitutional limits on punitive- damage awards. But the decision also exposes sharp differences within the court on the issue.

"While apparently recognizing the novelty of its holding, the majority relies on a distinction between taking third-party harm into account in order to assess the reprehensibility of the defendant's conduct – which is permitted – from doing so in order to punish the defendant directly – which is forbidden," writes Justice Stevens in his dissent. "This nuance eludes me."

"A murderer who kills his victim by throwing a bomb that injures dozens of bystanders should be punished more severely than one who harms no one other than his intended victim," Stevens writes.

"There is no reason why the measure of the appropriate punishment for engaging in a campaign of deceit in distributing a poisonous and addictive substance to thousands of cigarette smokers statewide should not include consideration of the harm to those 'bystanders' as well as the harm to the individual plaintiff," Stevens writes.

The decision stems from an Oregon lawsuit filed in 1997 against Philip Morris by Mayola Williams after her husband, Jesse, died following a diagnosis of lung cancer. Mr. Williams had smoked three packs of cigarettes a day for 45 years.

Lawyers for Philip Morris told the jury that Williams accepted the risks of smoking despite government warnings about the dangers of cigarettes and tobacco.

Mrs. Williams's lawyers countered that Philip Morris perpetrated a massive fraud by pushing an addictive and dangerous product on unsuspecting consumers. Tobacco company officials adopted a strategy of casting doubt on government health warnings, the lawyers said. The firms offered just enough of a crutch to allow addicted smokers – like Mr. Williams – the justification and reassurance to go ahead and ignore the government's warnings and continue their smoking habit, the lawyers told the jury.

Business and industry groups have been following the case, hoping the high court would use it to inject a higher level of predictability into American tort law. Business associations complain that in many states they face open-ended liability from jurors who view corporations as deep pockets capable of paying any penalty.

On the other side, trial lawyers, consumer groups, and health organizations were hoping the high court would back away from earlier efforts to limit what a majority of justices had viewed as excessive punitive damages. These groups see the threat of large punitive-damage awards as an effective deterrent against wrongdoing and as a positive force in society.